U.S. securities depositary could refuse to transfer bonds for the swap

Thursday’s Analysis/Opinion Coverage:

 

El Cronista: “U.S. securities depositary could refuse to transfer bonds for the swap”

 

El Cronista: “Debt: one must also think of the day after” 

 

El Cronista: “Pari passu: the case is still not lost”

 

 

El Cronista

U.S. securities depositary could refuse to transfer bonds for the swap

 

Thursday, August 29, 2013

 

By Julian Guarino

 

A key piece in the way that the Argentine Government has outlined in its goal of opening the debt swap for bonds with New York legislation, the Depository Trust & Clearing Corporation (DTCC) could paradoxically become a complex barrier.

 

DTCC is the equivalent to the Caja de Valores in Argentina, which is a depositary where one finds under custody the bonds that are traded in the United States.

 

In this case, the bulk of Argentine bonds are found at the DTCC with New York legislation - among other laws--that investors are holding under its ownership.

 

The intention of the government to swap the bonds must count on, whether it likes it or not, the collaboration of the depositary, and the consent of the holder of the bonds.

 

Thus, DTCC must facilitate mechanisms to inform potential participants of the swap and move the bonds to the local Caja de Valores to put the debt swap in motion.

 

In the opinion of several experts, the problem arises in the ruling issued by the Court of Appeals of Manhattan, which last Friday identified third parties and warned of possible punishment in the event that "they help" the country  take another route of payment than the usual one.

 

In its report with regard to the ruling and the reopening of the swap, Vladimir Werning, director of JPMorgan Chase and expert in emerging markets, said that "even though the Court points out that blocking of the payment of restructured debt is stayed, there is another court's decision that is not stayed and that includes a ban on payments going another route than usual". He also noted that "this means that no financial intermediary can assist Argentina to reorient their payments and nor will it merit contemplation of the Court. While a voluntary exchange would seem to be sufficient, technically any help from intermediaries will put them under judicial accountability".

 

In this same vein, Paula Premrou, director of Portfolio Personal, remains cautious around what could be the participation of DTCC moving bonds on the order of their owners.

 

"It could become a bigger inconvenience,  since with what we have with the ruling of the Court, the depositary cannot move the bonds and therefore the swap not could be held by persistent warning from the Court."

 

At Quantum Financial, the consultancy led by Daniel Marx, they argue that "the ruling suggests that, in it will decide the scope of a measure aimed at enforcing a judgment for payment.  This means until where it involves what it characterizes as agents of Argentina, and even the reach over mechanisms of transmission of same in different territories. However, it anticipates its special doubts over the role of the Bank of New York as an agent of the debtor".

 

However, for economist Ramiro Castiñeira, of the firm Econometrica, while the Court's ruling is inescapable, "the decision of the holders of the bonds should prevail, which means if there is an order to move the securities to Argentina it could do so without problems.”

 

The ruling issued by the Court of Appeals for the Second Circuit in New York last Friday upheld that the holdouts should receive 100% of what they demand, but at the same time granted a last legal chance to stay its decision in wait of a ruling in the Supreme Court.

 

The text that was issued from the Court made up of Reena Raggi, Barrington Parker and Rosemary Pooler rejected one of the arguments by finding that the intermediaries as possible partners of  Argentina’s in a hypothetical strategy to dodge the ruling and not merely as financial intermediaries that couldn’t be reached legally because they can’t do anything more than be an efficient bridge for their clients, the bondholders.

 

 

El Cronista

Debt: one must also think of the day after

 

Thursday, August 29, 2013

 

by Hernan de Goñi, Assistant News Director

 

At the time of defining its defense against the vulture funds, the government made a bet. For starters, it preferred to regard the trial as a battle of principles, where the right of a creditor to collect was not in play, but the power of a country to settle its debt beyond the harm that is caused by their decisions.

 

That was not its only bet, since it decided to promote this line of argument in the United States, the country where taxpayers boast of having more rights than the State itself. Thomas Griesa stood on the other side: he found that the bondholders had been defrauded and preserved their minority claim as if it were a case of abuse from a dominant position.

 

In the legal field, the battle is not lost, but it’s going badly. And with the decisions made by the government, it is not clear where it’s going. Because making a change of jurisdiction to give certainty to payment of restructured debt doesn’t earn points the courts. Worse still: it is possible that it subtracts them.

 

The latest official steps have not helped companies and investors to resolve what forecasts to make, giving rise to extreme precautions over a new default event. The government would help if it would clarify something - with the obvious limitations – on what kinds  of scenarios it expects, even those which don’t favor it. The story is feeding boldness, but also wisdom.

 

 

El Cronista

Pari passu: the case is still not lost

 

Thursday, August 29, 2013

 

by Marcelo Etchebarne Mihanovich. Partner, Cabanellas Etchebarne Kelly

 

Nobody is arguing it being wrong to profit unduly at the expense of another. The problem is that if the judiciary, in the Aristotelian sense, is on Argentina’s side, something must be happening for the judges to rule against it.  That merites that we review what could have been done in another way and if the time to change has come for us.

 

It is not consistent to say that this case is going to unleash a catastrophe in the international financial system and on millions of foreign investors who have Argentine bonds and at the same time say that this trial is the result of a conspiracy of international financial centers to benefit a few bondholders.

 

The total of sentences projected over bonds against Argentina would be approximately US$20 billion and rising. The most reasonable scenario projects sentences of US$14 billion, assuming that a third of the bondholders who didn’t enter the swap will not sue.  The funds that are litigating pari passu would have sentences of some US$5.7 billion and rising.  

 

If Argentina is losing a suit that is unfair and should not be losing, perhaps it is time for a change in strategy. The most important objective should be to contain the problem and not expand it to other cases. The more immediate goal, but not the most important one, should be to try to change the destiny of a lawsuit that is almost lost but where there are three instances of appeal.

 

What can Argentina do at this point to change the lawsuit? My father taught me that no tennis match is lost or won until the last serve and that no judgment is lost until the decision is final. There is a remote chance that this judgment can be reversed.

 

Argentina should have overcome all the tort grounds of the plaintiffs that determine that it is a violation of pari passu independently of payments. For that it should repeal the lock law instead of suspending it.  It should also delete article 4 of the bill that it sent to Congress since it is not necessary in the law. It should stop repudiating the debt and send as many concrete signals to the American judiciary that it is false that it is a non-complier.

 

Then it should, before appealing to the Court and within 14 days of the ruling on Friday, simultaneously file a double appeal before the judges of the panel and before the entire appeals court to request that they review the case (rehearing en banc).

 

The central argument of a review should be that Argentina is no longer violating the obligation to maintain equality of rank in the payment of the bonds that didn’t enter the swap. The Court of Appeals has already said that lack of payment alone does not constitute a violation of pari passu.

 

It would have been ideal to have done it earlier.  But there is still a small chance. And if it doesn’t work in this case, the most urgent, without a doubt it should serve for all other cases that will come later and thereby would serve to contain the largest problem which today is still small but which could multiply sooner or later by 10 or 15 times.